Fewer DVDs Mailed per Subscriber Can Help Netflix’s Stock


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We currently have a Trefis price estimate of $85 for Netflix’s (NASDAQ:NFLX) stock, about 33% below the current market price of $126.  Netflix’s stock is impacted by the average Number of DVDs Mailed per Netflix Subscriber since this determines a large part of Netflix’s variable cost (the cost of processing and mailing out DVDs).

A desirable situation for Netflix is to have lots of monthly subscribers that rent few DVDs, but remain loyal subscribers due to the convenience of Netflix and the option to watch movies online through Netflix’s website.  Such a situation could boost Netflix’s stock.

However, retaining subscribers that don’t use Netflix frequently won’t be easy since the company faces competition from pay TV players such as Time Warner Cable (NYSE:TWC), Comcast (NASDAQ:CMCSA), Dish Network (NASDAQ:DISH) and DirecTV (NASDAQ:DTV) that offer pay-per-view and video-on-demand options that are also convenient for existing pay TV subscribers.

Number of DVDs Mailed per Netflix Subscriber

In the past, Number of DVDs Mailed per Netflix Subscriber has decreased from 8.5 per month in 2006 to 7 per month in 2009.  The trend also reflects, in part, the growing importance of online streaming.  Netflix has been making more and more content available for online streaming.

The average of forecasts for Number of DVDs Mailed per Netflix Subscriber created by Trefis members during the last week indicated a projected decrease from 5.7 per month in 2010 to 3.6 per month by the end of the Trefis forecast period, compared to the baseline Trefis estimate of a decrease from 5.9 per month in 2010 to 4.4 per month by the end of the Trefis forecast period.

The member estimates imply an upside of 8% to the Trefis price estimate for Netflix’s stock.  Our complete analysis for Netflix’s stock is here.

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